Updated: July 31, 2023
When buying property in Portugal, you’ll hear about the CPCV. It’s known as the Contrato de Promessa de Compra e Venda, and holds significant importance in the property buying process. While not legally required, it serves as a crucial step that provides substantial protection to both buyers and sellers.
The promissory contract confirms the buyer’s intention to proceed with the purchase and makes it difficult for either party to back out of the agreement. It acts as a binding commitment, ensuring the sale’s completion and offering security to the buyer. Although some sellers may suggest skipping this contract to reduce legal costs, doing so diminishes the buyer’s level of protection.
In this article, we’ll give you an overview of the CPCV, property deposits, how to get everything on paper, and why the CPCV is always a good idea.
Deposits
One crucial stage in the property acquisition process involves placing a deposit and signing the promissory contract. After making an initial offer, the promissory contract serves as a confirmation of your intention to proceed with the purchase.
While submitting a deposit is a customary practice in numerous countries, it holds greater significance in Portugal due to the promissory contract (Contrato de Promessa de Compra e Venda or CPCV), which imposes significant obstacles for either the buyer or seller to withdraw from the agreement.
When entering into the promissory contract, it is customary for the buyer to provide a deposit, known as sinal, typically amounting to between 10 percent and 25 percent of the property’s value, but if both buyer and seller agree, this can be lower.
While the specific deposit amount may vary and occasionally, the seller or seller’s agent may request a higher sum, 10 percent is a common practice. The terms outlined in the promissory contract typically specify that if the buyer withdraws from the agreement, they forfeit the deposit. Conversely, if the seller decides to back out, they usually have to compensate the buyer with twice the deposit amount.
The Promissory Contract in Portugal
The promissory contract is not a mandatory requirement, and you can proceed directly to the final deed signing (Escritura) without it. Nonetheless, opting for the promissory contract offers substantial protection to the buyer, ensuring the completion of the sale. Some sellers may propose bypassing this step to minimize legal expenses for both parties, but doing so significantly reduces the level of protection afforded to you as the buyer.
It may also feel like a lot of stress to sign a contract with stringent terms, but it should be viewed as a significant step forward. Prior to this stage, it is relatively easy for the seller to withdraw from the agreement, and this does happen in Portugal.
There are various reasons why sellers may choose to pull out, including:
- The seller aims to relist the property in the hopes of securing a higher price.
- In cases where the seller is a group of individuals, often siblings, not all of them may be willing to sell, and some may not even be aware that the property is on the market.
By signing the CPCV, the likelihood of the sale proceeding increases significantly. While there is still a possibility of the deal falling through, at least you will have the advantage of having your deposit doubled.
Why the Promissory Contract is a Critical Part of the Buying Process
Another crucial aspect of the promissory contract is that it formalizes all the agreed-upon terms and ensures both parties sign the document. During the house viewing, you may have noticed certain issues or missing paperwork that warrant further investigation, such as the need for a survey.
Often, when you raise these concerns, you may encounter responses like “it’s fine” or “don’t worry.” While sometimes it’s the seller’s agent being friendly, other times they may attempt to downplay the issues, hoping you’ll proceed with the purchase without addressing them.
The CPCV prevents such practices by allowing you and the seller to establish the contract’s terms. It is common to include conditions such as the sale being contingent on mortgage approval for the specified amount and on the survey or property inspection not revealing any major problems.
What’s more, the CPCV typically specifies what items will remain in the property upon completion of the sale. While it is not unheard of for sellers to take everything, including lightbulbs, it is equally common for them to leave everything behind, especially in cases where they are selling a property previously owned by a deceased relative and have no interest in retaining dated furniture.
Typical Details
There are certain details every CPCV should contain. Below, we’ve made a list of items that should be listed in this contract:
- Identification of the buyer, seller, and their representatives, including their names and contact information
- A comprehensive description of the property, including its habitation license and registration number
- The CPCV should clearly state the selling price for the property.
- Specification of the deposit amount, payment method, and clarification regarding any additional payments to be made between the promissory contract and the signing of the deeds (Escritura)
- Inclusion of any additional items or furnishings that are part of the sale
Definition of the completion date when the deeds will be officially signed - Provision outlining the course of action in case of any delays
- The CPCV should outline the conditions that must be met by each party before the signing of the escritura.
These elements ensure that the promissory contract includes crucial information and establishes the framework for the subsequent stages of the property transaction.
Payment
Typically, the deposit is paid via a cheque or bank transfer, and it is usually made payable either to the seller directly or to the seller’s lawyer. It is worth noting that the practice of utilizing an escrow account is not commonly observed in Portugal for holding the deposit funds (an escrow account is a third-party account where funds are held before they are transferred from one party to another).
In Summary: The CPCV
Although it may seem a time-consuming and stressful addition to the process of buying property in Portugal, the CPCV is actually an assurance and protection for the buyer. Don’t bypass this, and don’t let any seller or seller’s agent talk you out of signing a CVC. In addition, make sure to use the help of a buyer’s agent, such as Goldcrest, to ensure that your best interests are always represented.
Goldcrest: How we can help
As a buyer’s agent, we will always work towards your best interests only. We strive to get the best deal for you regardless of the property you want to buy. To explore your options and see if we can help you, book a non-binding call with us and speak to one of our experts about buying property in Portugal.
In addition, you may find the following articles of interest:
Frequently Asked Questions about the CPCV in Portugal
What is a promissory contract in Portugal?
In Portugal, a promissory contract (Contrato de Promessa de Compra e Venda or CPCV) is a legal agreement between a buyer and seller that confirms their intention to proceed with a property sale, outlining the terms and conditions of the transaction.
Is a promissory agreement a contract?
Yes, a promissory agreement is a type of contract. It is a legally binding agreement between two parties that establishes the terms and conditions for a specific transaction, often related to the sale or purchase of a property.
What is a CPCV in Portugal?
In Portugal, CPCV stands for Contrato de Promessa de Compra e Venda, which translates to “Promissory Contract of Sale.” It is a legal document that solidifies the intentions and obligations of both the buyer and seller in a property transaction.
